Biofuel subsidies and international trade


This paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn-based ethanol, which diverts corn from use as food. In the small-country case, when the tax on crude is not available as a policy option, a second-best biofuel subsidy may or may not be positive. In the large-country case, the twin objectives of pollution reduction and terms-of-trade improvement justify a combination of crude tax and biofuel subsidy for the food exporter. Finally, we show that when both nations engage in biofuel policies, the terms-of-trade effects encourage the Nash equilibrium subsidy to be positive (negative) for the food exporting (importing) nation.

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Divisions: College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
College of Business and Social Sciences > Aston Business School > Aston India Foundation for Applied Research
College of Business and Social Sciences > Aston Business School
Additional Information: This is the pre-peer reviewed version of the following article: Bandyopadhyay, S., Bhaumik, S., & Wall, H. J. (2013). Biofuel subsidies and international trade. Economics and politics, Early view., which has been published in final form at
Uncontrolled Keywords: Economics and Econometrics
Publication ISSN: 1468-0343
Last Modified: 17 Jun 2024 07:12
Date Deposited: 08 Mar 2013 11:06
Full Text Link: http://onlineli ... .12009/abstract
Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
PURE Output Type: Article
Published Date: 2013
Published Online Date: 2013-02-21
Authors: Bandyopadhyay, Subhayu
Bhaumik, Sumon (ORCID Profile 0000-0002-4459-3659)
Wall, Howard J.



Version: Accepted Version

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